Construction can be a sign of an economy powering along. But too many cranes can see costs soar and construction falter. Picture: Darren Leigh Roberts

Business

Big problem dragging Australia down

by Benedict Brook

16th May 2018 7:54 PM

FOR many cities, a sign of success is how many cranes dot the skyline. Sydney and Melbourne are a sea of cranes as residential and commercial towers shoot up, fuelled by a multi-billion dollar infrastructure boom.

But a new report has warned that this very symbol of success could be harming Australia's economy and, with it, a million jobs. Sydney, in particular, could be heading from a construction boom to a building bust.

Research by built asset consultants Arcadis has found Sydney, Melbourne and Brisbane are now some of the most expensive cities to build in worldwide.

Construction can be a sign of an economy powering along. But too many cranes can see costs soar and construction falter. Picture: Darren Leigh Roberts

Construction costs in Sydney are the 19th highest in the world making it a more expensive city to build in than Brussels, Berlin or Singapore and only slightly cheaper than Paris. Melbourne comes in at 21 and Brisbane at 22 on the list.

Globally, the most expensive city to build in is San Francisco, followed by New York, Hong Kong and Toronto.

"Without significant improvement the high cost of construction will continue to act as a drag on overall global competitiveness," the report states.

San Francisco is the most expensive city in the world to build in. Picture: San Francisco Tourism/Matt Ragghianti

The construction industry in Australia employs more than a million people.

Talking to news.com.au, Arcadis' Matt Mackey said Australia's natural disadvantage of geography was now being compounded by a surge in building.

"Australia's geographic isolation means materials have to get imported so there's additional taxes, but there's also not the same level of competition. So in the UK and Europe, for instance, more companies are constantly competing for work."

The construction cost for major cities around the world. San Francisco is the most expensive city to build in. Picture: Arcadis

BUILDING EXPLOSION

Mr Mackey said Australia also suffered from a smaller population of skilled workers. The more projects, the more thinly that workforce was being stretched.

"In Sydney and Melbourne, you have governments pumping billions of dollars into infrastructure investment and that creates confidence that has a spill-over effect into commercial and residential property.

"But as more gets built, the local labour pool gets very heated and that leads to skill shortages. As soon as you have a shortage of something, things starts costing more and contractors can cherrypick for work so they may choose to tender for only one in every four projects as they know they don't have to win the next job."

In last week's Budget, the federal Government committed $24 billion to new road, rail and air infrastructure with Victoria a big winner.

Australia's infrastructure explosion has seen very similar projects, demanding specific skills, being built simultaneously. In both Sydney and Melbourne, underground rail networks are under construction. Light rail systems are being built right now in Sydney, Canberra and Newcastle.

"When markets get heated like this there's a threshold that's reached where projects stop preceding. They might get as far as the development stage and then they are put on hold while they wait for the price to drop," Mr Mackey said. And that means work in the industry can start to dry up.

"That's boom and bust, with the bust being a correction in the market."

A chart in the report vividly illustrates the current Australian construction boom and bust cycle with Sydney at the peak of its boom. Of the trio, it is the city most in danger of entering a building bust.

"Sydney is in the middle of the boom; Melbourne, which had been playing catch-up to Sydney in terms of federal infrastructure funding, is now heading into a boom cycle while Brisbane has almost the complete polar opposite and is coming out of a downturn because it's not had the same level of construction activity," Mr Mackey said.

The construction boom and bust cycle for Australia’s largest cities. Sydney (S) is in the middle of a boom, Melbourne (M) is entering a boom while Brisbane (B) is bottoming out from a downturn. Picture: Arcadis